Skinny No More: How 'Mesomorph Bundles' Are Fueling vMVPDs' Explosive Growth

Ask most observers about vMVPDs (virtual MVPDs, or pay-TV that’s delivered via the open internet rather than via cable or satellite), and they’ll tell you all about skinny bundles and how they’re designed to bring cord cutters and cord nevers back into the fold.

While that was true as recently as a year ago, vMVPDs have grown up and are more accurately described as “mesomorph bundles” — 80- to 100-channel packages priced at around $40-$50 per month. And unlike skinny bundles, these mesomorph bundles are proving to be quite popular; they are poised to grow exponentially over the next two to three years.

Here’s why:

The Problem With Skinny Bundles: 30% Fewer Dollars But 70% Less Content

Priced as low as $20 per month, skinny bundles initially seemed like a great bargain and a way to bring those who’d fled (or never entered) the pay-TV ecosystem back inside. The problem was they never felt like a particularly good deal. They were less expensive than traditional cable, but the amount of content the user was sacrificing was pretty high. Even though research shows most people only watch around 10-12 channels, going from 800 channels to 20 seemed pretty drastic, and the low price didn't make up for that — viewers felt like they were getting a bargain-basement product.

Enter The Mighty Mesomorph Bundle

While often lumped together with skinny bundles, mesomorph bundles provide the best of both worlds: lower prices and an ample amount of content. With 80 to over 100 channels, viewers really aren’t giving anything up — what’s missing are often channels the average viewer has never heard of, like the American Heroes Channel or the BabyFirst channel. The three major mesomorph bundles — Hulu Live TV, YouTubeTV and DirecTV Now — all seem to have ample selections of news, entertainment, kids' programming and sports, right down to regional sports networks (RSNs). Not every RSN in every market, but enough to satisfy many sports fans, and they’re signing up more all the time.

What that means in real-world terms is that their customers feel like they’re getting value: They're saving money without really giving anything up in terms of content choices, and as we'll see, they're getting a superior interface and operating system to boot.

That’s notable because it says that viewers see a whole lot of value in having a broad selection of channels, that they see a plan that gives them 80 channels for $45 as being far more valuable than one that gives them 40 channels for $25, and that they're happy to pay the extra money to have a broader array of options.

An End To Paying Nordstrom Prices For Kmart Service: Better UX Means Happier Users

One of the key reasons viewers are so dissatisfied with the current pay TV industry is the constant sense that they're “paying Nordstrom prices for Kmart service” especially when it comes to the onscreen interface. A customer paying over $100 per month for cable has a right to expect an interface that looks like it was designed sometime this millennium, works across multiple devices and makes finding and using features like VOD and DVR easy and intuitive.

But except for a few notable exceptions (e.g., Comcast’s X1 box), this has not been the case. What the MVPDs, which have never had to compete for customers, don’t seem to get is that few things say “we don’t care a whit about our customers” like poorly designed, rarely updated onscreen interfaces; vMVPDs, on the other hand, have made that problem disappear.

Their interfaces are leagues better than what most viewers are used to seeing on their set-top boxes. Some, like Hulu Live TV, are actually quite revolutionary.

In addition to being more elegant than anything on the set-top box, they provide several features that TV viewers can get from the likes of Netflix but not from their MVPD:

• Consistency: The interface looks fairly identical whether you’re on a smart TV, a connected device like Roku or Amazon Fire TV, an iPad or an Xbox. That’s a huge plus in terms of ease of use and something consumers have come to expect.
• Quantum Viewing: This is a fancy term that means the ability to stop watching a show on one device and pick up exactly where you left off on a different device at a different time in a different location. This is again something that viewers have gotten used to from Netflix, Amazon and Hulu, but were unable to get from their MVPDs, adding to the whole “Nordstrom prices for Kmart service” syndrome.
• Cloud DVR: Just what it sounds like — the DVR is accessible from any device in any location and allows for quantum viewing. So no more being tethered to a physical set-top box and no more having to figure out what to do if you realize you forgot to record something — you can log in and do it via the same interface you have at home.
• Catch-Up Viewing: The vMVPDs have this available on many, but not all channels — turn on Modern Family 12 minutes after it started, and you can actually start watching it from the beginning without having to resort to your DVR. A common feature in Europe, it's still not available via most U.S.-based MVPDs.
• Personalized Accounts: Many vMVPDs allow each family member to have their own individual log-ins so as to get better recommendations (and eventually, better targeted advertising). Another Netflix/Hulu feature that helps add to the perception that the vMVPD is a very good deal for the money.
• Recommendations: Hulu Live TV has a fairly radical homepage that’s based on the premise of “what do you want to watch?” rather than “what’s on now?” — the home screen shows you recommendations from both Hulu’s linear and VOD library. Its competitors are more focused on linear, but also recommend shows based on your viewing habits. In real-world terms, that means that if you’ve shown a prior interest in basketball, and tune in to watch the NCAA men’s final, the vMVPD will likely have that listed among your top recommendations. It saves you the hassle of having to remember which network was showing the game and which channel their HD station is on. Again, it’s a way to make viewers feel they’re getting better value for their money.
• Easy Add-Ons and Other Account Switches: Want to add or subtract HBO from your account? Just go online, and you can change your account in minutes. That’s a far cry from the usual MVPD ploy of having to spend hours on a phone chain just to speak to a customer service rep, who will likely try to talk you out of dropping HBO because dropping it would somehow make your bill go up $10/month.
• Tech Issues: This is the only real negative; vMVPDs still have a lot of tech issues: buffering, skipping, crashing. The good news is that this is all fixable: Netflix had all the same issues in its early years, and most often tech issues are caused by more users on the system than the vMVPD had originally anticipated. Still, for viewers expecting a seamless experience, it's definitely an issue.

Too Much Of A Good Thing?

The problem with vMVPDs, if there is one, is that they may prove to be far too tempting to viewers of all stripes. Word of mouth on them is strong, for all the reasons listed above, and the next 18 to 36 months may see a raft of current pay TV subscribers realizing that the mesomorph bundles are an incredible deal, giving them everything they've been looking for in a pay TV service for a whole lot less money than they’re paying now.

That would be problematic for the MVPDs, since they charge a whole lot less (and make a whole lot less) on the vMVPD services, and for the networks, since the industry has not gotten its act together yet in terms of vMVPD ratings and advertisers would have a tough time figuring out what to pay (and networks what to charge.)

Getting The House Back In Order

Fortunately, none of this is permanent, and all of it is (likely) fixable.

Pricing: While not exactly good news for consumers, the price of vMVPD service will likely go up as more users come on board. This is exactly what happened with traditional MVPD service (cable bills weren’t always over $100) although hopefully this time the providers will know when enough is enough. Regardless, they’ll be able to bundle their mesomorph bundles (and likely ectomorph bundles) together with broadband and sell them as double-play packages, an obvious move given MVPDs make a much higher profit from broadband. (That’s not good news, however, for YouTube TV, which lacks any sort of broadband partnerships, although with the growth of 5G and Google's deep pockets, that, too, may change.)

TV Everywhere: MVPDs have struggled with TV Everywhere since they first tried to roll it out in 2011 and promptly got sued by the networks. They’re still struggling with it, partly due to legal reasons and partly due to their own complicated relationship with the value of user experience (UX) and design. If the MVPDs can get over the latter challenge, their own vMVPDs will make excellent TV Everywhere apps for them, and they can sell them both ways: as a standalone broadband-only pay-TV service or as the (free) digital companion app to their full-service, platinum-level pay TV package. (At least until those platinum-level packages go away, which I suspect will happen in about five to 10 years.)

Measurement: It’s easy for me to write that the networks, ad agencies and MVPDs will all agree on a standard means of measuring OTT viewing, but the reality is it’s a lot harder than it sounds. What will likely emerge is something that draws from multiple sources: Nielsen’s panels, ACR data from smart TVs, set-top-box data and device-related data. Whoever solves the measurement problem will definitely be rewarded handsomely for it, so there’s incentive if not necessarily agreement.

Advanced Advertising: vMVPD broadcasts, whether they are off VOD, a cloud DVR or linear, are all delivered digitally, and are thus able to handle all manner of advanced advertising techniques, everything from interactive to addressable. This should help the industry to meet its desired goal of fewer but better-targeted ads that advertisers will pay more money for, delivered via an interface viewers actually enjoy using.

So keep your eye on the vMVPD market. Close to five million people have already made the switch, and with mesomorph bundles providing the sort of value that attracts attention, that number is sure to grow. More services will be launching, too, mostly from MVPDs, and competition is always good for the consumer. It's a fascinating time to be in the business, and the potentially rapid growth arc of vMVPDs only serves to make it more interesting.

 Originally published at Forbes.com on April 5, 2018